Monti's 'make or break' meeting with unions

2012-03-20 12:58

Rome - Prime Minister Mario Monti began a final push for a deal with unions on Tuesday over a revamp of labour laws aimed at creating jobs and underpinning wider reforms to Italy's weak economy.

The former European commissioner opened informal discussions on a number of disputed points in the morning, ahead of a meeting with labour leaders later this afternoon to try to reach a deal on easing long-cherished legal protections for workers. 

The government argues the rules have contributed to years of chronically low job rates and minimal economic growth, but the biggest union is resisting changes.

Four months after he was summoned from academic semi-retirement to rescue Italy from a Greek-style debt crisis, Monti has won acclaim for taking action where his billionaire predecessor Silvio Berlusconi had, in the eyes of many, offered little more than rhetoric and distraction.

At the head of a government of technocrats installed with the approval of European Union partners - and Italy's creditors - Monti has already forced through a €33bn austerity package to try to stop the rot in public finances.

He has made Italians swallow sharp cuts in future pension provisions and done away with a swathe of regulations on service businesses.

But Monti, who has made labour market reform a priority for his government, faces his first big moment of truth when he tries to deliver on a promise to broker an agreement on labour market reforms.

Failure to persuade union leaders, who fear they may have already given too much away in the atmosphere of national emergency, could mean mass strikes and ructions within Monti's left-right parliamentary coalition.

The prime minister has vowed to press on with reforms regardless, setting a deadline of the end of the month for reaching a workable compromise. And whatever happens on Tuesday, the arguments are likely to rumble on.

The meeting is being closely watched by investors as an indicator of how far Monti can go, and how fast.

Employers complain that regulations, many dating from the 1970s high-water mark of trade union power, are discouraging them from taking on new staff and stifling productivity.

"We're running the last mile," said Corrado Passera, the banker Monti brought into government in November as industry minister. "An agreement is within reach," he told reporters in remarks that are at odds with signals coming from some unions.

Two-tier labour market

Monti wants the unions to abandon rules enshrined in Article 18 of the labour law that make it difficult to fire workers in larger companies for all but the grossest of misconduct.

The rules have been blamed for contributing to a two-tier labour market familiar across southern Europe where older staff monopolise protected positions, leaving the young either out of work altogether or on precarious short-term contracts.

The metalworkers arm of the biggest union, the left-wing CGIL, has already laid down its marker for the day by calling on members to down tools for two hours of their own choosing during Tuesday.

Leaders say they will not back down on rejecting Monti's proposed changes for newly hired staff to Article 18, a treasured achievement of employee protection law.

Other trade unions, which form part of a substantial unionised workforce of 12 million, or one Italian in five, have sounded a more conciliatory note, however, and the unions failed to come up with a common line on Monday. "An agreement is very possible," UIL labour leader Luigi Angeletti said on Monday.

His price, however, remained a substantial climb-down by the government on proposed changes to Article 18. "All that must be done is to change the hard line," Angeletti told La Stampa newspaper, arguing the changes had "absolutely nothing to do with the economy, with flexibility or with job creation".

More than 30% of 18- to 24-year-olds are unemployed, and only about 57% of Italians have a job, giving the country one of the lowest employment rates in the eurozone and also among the slowest economic growth on the continent.

Monti must bolster estimates of the potential growth rate if he is to convince markets that, in the long run, Italy can pay off its debt. So far the former academic economist has been highly successful in turning around market sentiment.

Italy's benchmark bond yield has fallen to below 5% from highs of close to 8% near the end of last year. But investors may start changing their opinions if Monti fails to pull off the labour market reforms he has promised.